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  • Lachlan Star Raising C$12.93M To Increase Chilean Gold Production 0 comments
    Apr 4, 2013 2:12 AM

    Lachlan Star (ASX: LSA) is raising C$12.93 million (A$12.17 million) to advance certain capital works that will increase gold production and maintain a cash buffer on its balance sheet.

    Separately, the company has increased the amount of gold mined from its CMD Gold Mine in Chile due to a combination of greater tonnage of ore mined and higher grades.

    In addition, current director Peter Babin will assume day to day responsibility for the company from 1 July 2013 when he takes up his new role as Lachlan's president.

    The funds will be raised through a private placement of 22.68 million shares priced at C$0.57 per share to accredited North American and European investors.

    This represents a 12% premium to the 5 day Volume Weighted Average Price for the company's shares on the Toronto Stock Exchange prior to 2 April 2013.

    Lachlan added the placement is being made within its 15% approval limit under Australian Securities Exchange's Listing Rule 7.1 and the additional 10% approval limit approved by shareholders at the last Annual General Meeting.

    Placement Purposes

    Proceeds from the placement will be used for the following:

    - C$2.5 million for additional spares inventory for the crushing and ADR plants to increase plant availability;
    - C$0.75 million to advance capital works associated with increasing fluid flows and solution grades in the leach pads;
    - C$1 million to advance capital works on the ROM and dynamic pads; and
    - C$8.68 million for general working capital purposes.

    The added working capital will provide a significant cash buffer to the balance sheet at a premium to the market price at a time when capital for gold mining companies is difficult to source.

    This will also remove uncertainty in the market place about whether the Company would require additional funding.

    Increasing plant availability as well as fluid flows and solution grades in the leach pads will serve to increase plant production.

    Corporate Strategy

    Going forward, Lachlan Star intends to pay out the maximum amount of free operating cash flow possible as dividends once sufficient cash and gold has been accrued to the balance sheet to provide a suitable cash buffer and ensure all internal capital projects are fully funded.

    This will be paid out on a quarterly basis with shareholders having the option to take payment in gold as well as cash.

    It added that it does not plan to pursue acquisitions but will instead focus on building a long-term reliable producing gold asset at the CMD Gold Mine and maximising cash flow from the mine.

    Lachlan said its decision to pursue a strategy of paying out its cash flow and not risking shareholder's funds was sparked by the relative outperformance of cash flow paying royalty companies over gold equities in recent times, which is in turn partly attributable to investors' desire for yield.

    Operational update

    The company has reported that it mined 21,220 ounces of gold in the March 2013 quarter, up 14% from the previous quarter.

    This follows a gradual increase in the total tonnage of ore mined as its Komatsu fleet started operations in the quarter as well as a 21% increase in average grades due to increasing grade contribution from the Chisperos pit.

    Waste to ore ratios continue to fall in line with the mine plan and were down 17% on the previous quarter and were 2.6:1 in the month of March. The current mine plan envisages a waste:ore ratio of 1.6:1 by the end of calendar 2013 and a Life of Mine average of 1:1.

    Gold stacked was up slightly to 17,940 ounces from the 17,855 ounces stacked in the previous quarter despite ore tonnage stacked being down by 7%, due to higher grades offsetting the lower tonnage stacked.

    A series of minor maintenance issues throughout the quarter negatively impacted plant availability and restricted average plant throughput.

    This issue is expected to be addressed by the acquisition of additional spare parts with part of the proceeds from the private placement.

    Lachlan is also considering ways to increase throughput at the back end of the plant to match with its mine fleet apparently able to comfortably mine well in excess of the current plant capacity as well as the excess capacity possessed by the front end of the plant.

    The first initiative has been to increase the sizing of the tertiary crushed product from 9mm to 11mm, which is being completed this week.

    This is expected to give up to an additional 2,000 tonnes per day of crushing capacity for no material negative impact on recovery or leach times. It should also result in lower maintenance costs and reduced downtime in the tertiary crushing circuit.

    During the second half of the year the company is considering leasing a mobile primary crusher to crush the low-grade ore and to further increase stacked tonnages.

    The goal of the company is to have sufficient crushing capacity to be able to run the mining fleet at a higher production rate.

    New president

    Peter Babin's appointment as the company's president will further strengthen its management in the Americas given that about 85% of its shares are held in North America while its sole operating asset is also located in the Americas.

    He is familiar with the CMD Gold Mine intimately given his time as a part owner of the mine from 2004 to 2010.

    Babin was also formerly the president of Royal Gold, a royalty company with a market capitalisation of about $4.5 billion.

    Mick McMullen, the current Executive Chairman, will return to a non-executive chairman role once Peter Babin assumes the president position.

    Management of operations will remain with the current chief operating officer Bira de Oliveira.

    Analysis

    Lachlan Star's private placement is targeted at increased plant availability and throughput from the backend of the CMD plant, which will in turn increase gold production.

    Raising the funds through a placement at a premium also speaks well of the confidence that investors have in the company's goal of building a long-term reliable producing gold asset at the CMD Gold Mine and maximising cash flow from the mine.

    Lachlan had $7.49 million in cash as of 31 December 2012.

    Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.

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